The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
(Unaudited)
1. General
Nature of operations
TransAtlantic Petroleum Ltd. (together with its subsidiaries, “we,” “us,” “our,” the “Company” or “TransAtlantic”) is an international oil and natural gas company engaged in acquisition, exploration, development and production. We have focused our operations in countries that have established, yet underexplored petroleum systems, are net importers of petroleum, have an existing petroleum transportation infrastructure and provide favorable commodity pricing, royalty rates and tax rates to exploration and production companies. We hold interests in developed and undeveloped oil and natural gas properties in Turkey and Bulgaria. As of August 7, 2017, approximately 47.9% of our outstanding common shares were beneficially owned by N. Malone Mitchell 3rd, our chief executive officer and chairman of our board of directors.
TransAtlantic is a holding company with two operating segments – Turkey and Bulgaria. Its assets consist of its ownership interests in subsidiaries that primarily own assets in Turkey and Bulgaria.
Basis of presentation
Our consolidated financial statements are expressed in U.S. Dollars and have been prepared by management in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”). All amounts in the notes to the consolidated financial statements are in U.S. Dollars unless otherwise indicated. In preparing financial statements, management makes informed judgments and estimates that affect the reported amounts of assets and liabilities as of the date of the financial statements and affect the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, management reviews estimates, including those related to fair value measurements associated with acquisitions and financial derivatives, the recoverability and impairment of long-lived assets, contingencies and income taxes. Changes in facts and circumstances may result in revised estimates and actual results may differ from these estimates. During the six months ended June 30, 2017, we reclassified certain balance sheet amounts previously reported on our consolidated balance sheet at December 31, 2016 to conform to current year presentation.
Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2016.
On February 24, 2017, we closed the sale of our ownership interests in our subsidiary Thrace Basin Natural Gas (Turkiye) Corporation (“TBNG”) for gross proceeds of $20.7 million, and approximate net cash proceeds of $16.1 million, effective as of March 31, 2016.
We classified the assets and liabilities of TBNG within the captions “Assets held for sale” and “Liabilities held for sale” on our consolidated balance sheets as of December 31, 2016. Although the sale of TBNG met the threshold to classify its assets and liabilities as held for sale, it did not meet the requirements to classify its operations as discontinued as the sale was not considered a strategic shift in the Company’s operations. As such, TBNG’s results of operations are classified as continuing operations for all periods presented (See Note 13, “Assets and liabilities held for sale and discontinued operations”).
7
2
. Recent accounting pronouncements
In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-08, Revenue from Contracts with Customers (Topic 606):
Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
(“ASU 2016-08”). ASU 2016-08 does not change the core principle of Topic 606, but clarifies the implementation guidance on principal versus agent considerations. ASU 2016-08 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-08 on our consolidated financial statements and results of operations.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606):
Identifying Performance Obligations and Licensing
(“ASU 2016-10”). ASU 2016-10 does not change the core principle of Topic 606, but clarifies the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-10 on our consolidated financial statements and results of operations.
In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses
(“ASU 2016-13”). ASU 2016-13 changes the impairment model for most financial assets and certain other instruments, including trade and other receivables, held-to-maturity debt securities and loans, and requires entities to use a new forward-looking expected loss model that will result in the earlier recognition of allowance for losses. This update is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for a fiscal year beginning after December 15, 2018, including interim periods within that fiscal year. Entities will apply the standard's provisions as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We are currently assessing the potential impact of ASU 2016-13 on our consolidated financial statements and results of operations.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):
Classification of Certain Cash Receipts and Cash Payments
(“ASU 2016-15”). ASU 2016-15 reduces diversity in practice in how certain transactions are classified in the statement of cash flows. The amendments in ASU 2016-15 provide guidance on specific cash flow issues including debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, and distributions received from equity method investees. ASU 2016-15 is effective for annual and interim periods beginning after December 15, 2017. We are currently assessing the potential impact of ASU 2016-15 on our consolidated financial statements and results of operations.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash
(“ASU 2016-18”). ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. The amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statements of cash flows. The amended guidance will be effective for annual periods beginning after December 15, 2017. The amendments should be applied using a retrospective transition method to each period presented. Early adoption is permitted for any entity in any interim or annual period. We are currently evaluating the potential impact of ASU 2016-18 on our consolidated financial statements and results of operations.
We have reviewed other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on our consolidated results of operations, financial position and cash flows. Based on that review, we believe that none of these pronouncements will have a significant effect on current or future earnings or operations.
3. Series A Preferred Shares
Series A Preferred Shares
On November 4, 2016, we issued 921,000 shares of our 12.0% Series A Convertible Redeemable Preferred Shares (“Series A Preferred Shares”). Of the 921,000 Series A Preferred Shares, (i) 815,000 shares were issued in exchange for $40.75 million of our 13.0% Convertible Notes due 2017 (“2017 Notes”), at an exchange rate of 20 Series A Preferred Shares for each $1,000 principal amount of 2017 Notes, and (ii) 106,000 shares were issued and sold for $5.3 million of cash to certain holders of the 2017 Notes. All of the Series A Preferred Shares were issued at a value of $50.00 per share. We used $4.3 million of the gross proceeds to redeem a portion of the remaining 2017 Notes on January 1, 2017. The remaining proceeds were used for general corporate purposes. The Series A Preferred Shares contain a substantive conversion option, are mandatorily redeemable and convert into a fixed number of common shares. As a result, under U.S GAAP, we have classified the Series A Preferred Shares within mezzanine equity in our consolidated balance sheets. As of June 30, 2017, there were $21.3 million of Series A Preferred Shares and $24.8 million of Series A Preferred Shares – related party outstanding.
8
Pursuant to the Certif
icate of Designations for the Series A Preferred Shares (the “Certificate of Designations”), each Series A Preferred Share may be converted at any time, at the option of the holder, into 45.754 common shares of the Company (which is equal to an initial con
version price of approximately $1.0928 per common share and is subject to customary adjustment
s
for stock splits, stock dividends, recapitalizations or other fundamental changes).
During the period ending on November 4, 2017, the conversion rate will be adjusted on an economic weighted average anti-dilution basis for the issuance of common shares for cash at a price below the conversion price then in effect. Such anti-dilution prot
ection excludes (i) dividends paid on the Series A Preferred Shares in common shares, (ii) issuances of common shares in connection with acquisitions, (iii) issuances of common shares under currently outstanding convertible notes and warrants and (iv) issu
ances of common shares in connection with employee compensation arrangements and employee benefit plans. This non-standard dilution adjustment clause results in a contingent beneficial conversion feature.
If not converted sooner, on November 4, 2024, we are required to redeem the outstanding Series A Preferred Shares in cash at a price per share equal to the liquidation preference plus accrued and unpaid dividends. At any time on or after November 4, 2020, we may redeem all or a portion of the Series A Preferred Shares at the redemption prices listed below (expressed as a percentage of the liquidation preference amount per share) plus accrued and unpaid dividends to the date of redemption, if the closing sale price of the common shares equals or exceeds 150% of the conversion price then in effect for at least 10 trading days (whether or not consecutive) in a period of 20 consecutive trading days, including the last trading day of such 20 trading day period, ending on, and including, the trading day immediately preceding the business day on which we issue a notice of optional redemption. The redemption prices for the 12-month period starting on the date below are:
|
|
Period Commencing
|
Redemption Price
|
November 4, 2020
|
105.000%
|
November 4, 2021
|
103.000%
|
November 4, 2022
|
101.000%
|
November 4, 2023 and thereafter
|
100.000%
|
Additionally, upon the occurrence of a change of control, we are required to offer to redeem the Series A Preferred Shares within 120 days after the first date on which such change of control occurred, for cash at a redemption price equal to the liquidation preference per share, plus any accrued and unpaid dividends.
Dividends on the Series A Preferred Shares are payable quarterly at our election in cash, common shares or a combination of cash and common shares at an annual dividend rate of 12.0% of the liquidation preference if paid all in cash or 16.0% of the liquidation preference if paid in common shares. If paid partially in cash and partially in common shares, the dividend rate on the cash portion is 12.0%, and the dividend rate on the common share portion is 16.0%. Dividends are payable quarterly, on March 31, June 30, September 30, and December 31 of each year. The holders of the Series A Preferred Shares also are entitled to participate pro-rata in any dividends paid on the common shares on an as-converted-to-common shares basis. For the three and six months ended June 30, 2017, we paid $1.4 million and $2.8
million, respectively,
in cash dividends on the Series A Preferred Shares, which is recorded
in our consolidated statements of comprehensive (loss) income under the caption
“Interest and other expense.”
Except as required by Bermuda law, the holders of Series A Preferred Shares have no voting rights, except that for so long as at least 400,000 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class have the right to elect two directors to our Board of Directors. For so long as between 80,000 and 399,999 Series A Preferred Shares are outstanding, the holders of the Series A Preferred Shares voting as a separate class have the right to elect one director to our Board of Directors. Upon less than 80,000 Series A Preferred Shares remaining outstanding, any directors elected by the holders of Series A Preferred Shares shall immediately resign from our Board of Directors.
The Certificate of Designation also provides that without the approval of the holders of a majority of the outstanding Series A Preferred Shares, we will not issue indebtedness for money borrowed or other securities which are senior to the Series A Preferred Shares in excess of the greater of (i) $100 million or (ii) 35% of our PV-10 of proved reserves as disclosed in our most recent independent reserve report filed or furnished by us on EDGAR.
We have agreed to use commercially reasonable efforts to file a shelf registration statement for the resale of the Series A Preferred Shares and the common shares issuable upon conversion of the Series A Preferred Shares prior to November 5, 2017 and have such shelf registration statement declared effective by the SEC as soon as practicable after filing.
9
4. Property and equipment
Oil and natural gas properties
The following table sets forth the capitalized costs under the successful efforts method for our oil and natural gas properties as of:
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
(in thousands)
|
|
Oil and natural gas properties, proved:
|
|
|
|
|
|
|
|
Turkey
|
$
|
200,176
|
|
|
$
|
196,743
|
|
Bulgaria
|
|
510
|
|
|
|
471
|
|
Total oil and natural gas properties, proved
|
|
200,686
|
|
|
|
197,214
|
|
Oil and natural gas properties, unproved:
|
|
|
|
|
|
|
|
Turkey
|
|
30,033
|
|
|
|
21,109
|
|
Total oil and natural gas properties, unproved
|
|
30,033
|
|
|
|
21,109
|
|
Gross oil and natural gas properties
|
|
230,719
|
|
|
|
218,323
|
|
Accumulated depletion
|
|
(124,460
|
)
|
|
|
(115,401
|
)
|
Net oil and natural gas properties
|
$
|
106,259
|
|
|
$
|
102,922
|
|
For the six months ended June 30, 2017, we recorded foreign currency translation adjustments, which increased proved properties and decreased accumulated other comprehensive loss within shareholders’ equity on our consolidated balance sheet.
At June 30, 2017 and December 31, 2016, we excluded $0.2 million and $1.9 million, respectively, from the depletion calculation for proved development wells currently in progress and for costs associated with fields currently not in production.
At June 30, 2017, the capitalized costs of our oil and natural gas properties, net of accumulated depletion, included $12.7 million relating to acquisition costs of proved properties, which are being depleted by the unit-of-production method using total proved reserves, and $63.3 million relating to well costs and additional development costs, which are being depleted by the unit-of-production method using proved developed reserves.
At December 31, 2016, the capitalized costs of our oil and natural gas properties included $13.2 million relating to acquisition costs of proved properties, which are being amortized by the unit-of-production method using total proved reserves, and $66.7 million relating to well costs and additional development costs, which are being amortized by the unit-of-production method using proved developed reserves.
Impairments of proved properties and impairment of exploratory well costs
Proved oil and natural gas properties are reviewed for impairment when events and circumstances indicate the carrying value of such properties may not be recoverable. We primarily use Level 3 inputs to determine fair value, including but are not limited to, estimates of proved reserves, future commodity prices, the timing and amount of future production and capital expenditures and discount rates commensurate with the risk reflective of the lives remaining for the respective oil and natural gas properties.
During the six months ended June 30, 2017, we recorded $0.1 million of impairment of proved properties and exploratory well costs which are primarily measured using Level 3 inputs.
Capitalized cost greater than one year
As of June 30, 2017, we had $3.9 million of exploratory well costs capitalized for the Pinar-1 well in Turkey, which we spud in March 2014. We are currently sidetracking the Pinar-1 well.
10
Equipment and other property
The historical cost of equipment and other property, presented on a gross basis with accumulated depreciation, is summarized as follows:
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
(in thousands)
|
|
Inventory
|
$
|
9,270
|
|
|
$
|
10,704
|
|
Leasehold improvements, office equipment and software
|
|
7,603
|
|
|
|
7,280
|
|
Vehicles
|
|
365
|
|
|
|
364
|
|
Other equipment
|
|
2,026
|
|
|
|
1,925
|
|
Gross equipment and other property
|
|
19,264
|
|
|
|
20,273
|
|
Accumulated depreciation
|
|
(5,771
|
)
|
|
|
(5,237
|
)
|
Net equipment and other property
|
$
|
13,493
|
|
|
$
|
15,036
|
|
At June 30, 2017, we classified $3.7 million of inventory as a current asset, which represents our expected inventory consumption in the next twelve months. We classify our materials and supply inventory as long-term assets because such materials will ultimately be classified as long-term assets when the material is used in the drilling of a well.
At June 30, 2017 and December 31, 2016, we excluded $12.9 million and $14.4 million of inventory, respectively, from depreciation as the inventory had not been placed into service.
5. Asset retirement obligations
The following table summarizes the changes in our asset retirement obligations (“ARO”) for the six months ended June 30, 2017 and for the year ended December 31, 2016:
|
June 30, 2017
|
|
|
December 31, 2016
|
|
|
(in thousands)
|
|
Asset retirement obligations at beginning of period
|
$
|
4,833
|
|
|
$
|
9,237
|
|
Change in estimates
|
|
–
|
|
|
|
(7
|
)
|
Liabilities settled
|
|
(37
|
)
|
|
|
–
|
|
Foreign exchange change effect
|
|
46
|
|
|
|
(1,604
|
)
|
Additions
|
|
–
|
|
|
|
16
|
|
Accretion expense
|
|
95
|
|
|
|
373
|
|
Asset retirement obligations at end of period
|
|
4,937
|
|
|
|
8,015
|
|
Less: TBNG
|
|
-
|
|
|
|
3,182
|
|
Long-term portion
|
$
|
4,937
|
|
|
$
|
4,833
|
|
Our ARO is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.
6. Commodity derivative instruments
We use collar derivative contracts to economically hedge against the variability in cash flows associated with the forecasted sale of a portion of our future oil production. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.
To the extent that a legal right of offset exists, we net the value of our derivative contracts with the same counterparty in our consolidated balance sheets. All of our oil derivative contracts are settled based upon Brent crude oil pricing. We recognize gains and losses related to these contracts on a fair value basis in our consolidated statements of comprehensive (loss) income under the caption “Gain (loss) on commodity derivative contracts.” Settlements of derivative contracts are included in operating activities on our consolidated statements of cash flows under the caption “Cash settlement on commodity derivative contracts.”
11
During the three months ended June 30, 2017 and 2016, we recorded a net
gain
on commodity derivative contracts of
$0.7
million and
a net loss of
$3.
0
million, respectively. During the six months ended June 30, 2017 and 2016, we recorded a net
gain
on commodity derivative contracts of $
1.7
million and
a net loss of
$2.2 million, respectively.
At June 30, 2017 and December 31, 2016, we had outstanding derivative contracts with respect to our future crude oil production as set forth in the tables below:
Fair Value of Derivative Instruments as of June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
|
Minimum
|
|
|
Maximum Price
|
|
|
Estimated Fair
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
Price (per Bbl)
|
|
|
(per Bbl)
|
|
|
Value of Asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Collar
|
|
July 1, 2017 — December 31, 2017
|
|
|
293
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
$
|
116
|
|
Collar
|
|
July 1, 2017 — December 31, 2017
|
|
|
440
|
|
|
$
|
50.00
|
|
|
$
|
61.50
|
|
|
|
288
|
|
Collar
|
|
July 1, 2017 — December 31, 2017
|
|
|
489
|
|
|
$
|
47.00
|
|
|
$
|
59.65
|
|
|
|
161
|
|
Collar
|
|
January 1, 2018 — February 28, 2018
|
|
|
458
|
|
|
$
|
50.00
|
|
|
$
|
61.50
|
|
|
|
82
|
|
Collar
|
|
January 1, 2018 — March 31, 2018
|
|
|
500
|
|
|
$
|
47.00
|
|
|
$
|
59.65
|
|
|
|
60
|
|
Collar
|
|
January 1, 2018 — May 31, 2018
|
|
|
298
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
|
87
|
|
Total estimated fair value of asset
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
794
|
|
Fair Value of Derivative Instruments as of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Quantity
|
|
|
Minimum
|
|
|
Maximum Price
|
|
|
Estimated Fair
|
|
Type
|
|
Period
|
|
(Bbl/day)
|
|
|
Price (per Bbl)
|
|
|
(per Bbl)
|
|
|
Value of Liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
Collar
|
|
January 1, 2017 — December 31, 2017
|
|
|
296
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
$
|
(289
|
)
|
Collar
|
|
January 2, 2017 — December 31, 2017
|
|
|
445
|
|
|
$
|
50.00
|
|
|
$
|
61.50
|
|
|
|
(307
|
)
|
Collar
|
|
January 1, 2018 — February 28, 2018
|
|
|
458
|
|
|
$
|
50.00
|
|
|
$
|
61.50
|
|
|
|
(74
|
)
|
Collar
|
|
January 1, 2018 — May 31, 2018
|
|
|
298
|
|
|
$
|
47.50
|
|
|
$
|
61.00
|
|
|
|
(168
|
)
|
Total estimated fair value of liability
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(838
|
)
|
Balance sheet presentation
The following table summarizes both: (i) the gross fair value of our commodity derivative instruments by the appropriate balance sheet classification even when the commodity derivative instruments are subject to netting arrangements and qualify for net presentation in our consolidated balance sheets at June 30, 2017 and December 31, 2016, and (ii) the net recorded fair value as reflected on our consolidated balance sheets at June 30, 2017 and December 31, 2016.
|
|
|
|
As of June 30, 2017
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Net Amount of
|
|
|
|
|
|
Gross
|
|
|
Offset in the
|
|
|
Assets
|
|
|
|
|
|
Amount of
|
|
|
Consolidated
|
|
|
Presented in the
|
|
|
|
Location on Consolidated
|
|
Recognized
|
|
|
Balance
|
|
|
Consolidated
|
|
Underlying Commodity
|
|
Balance Sheets
|
|
Assets
|
|
|
Sheet
s
|
|
|
Balance Sheets
|
|
|
|
|
|
(in thousands)
|
|
Crude oil
|
|
Current assets
|
|
$
|
794
|
|
|
$
|
-
|
|
|
$
|
794
|
|
12
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Net Amount of
|
|
|
|
|
|
Gross
|
|
|
Offset in the
|
|
|
Liabilities
|
|
|
|
|
|
Amount of
|
|
|
Consolidated
|
|
|
Presented in the
|
|
|
|
Location on Consolidated
|
|
Recognized
|
|
|
Balance
|
|
|
Consolidated
|
|
Underlying Commodity
|
|
Balance Sheets
|
|
Liabilities
|
|
|
Sheets
|
|
|
Balance Sheets
|
|
|
|
|
|
(in thousands)
|
|
Crude oil
|
|
Current liabilities
|
|
$
|
596
|
|
|
$
|
-
|
|
|
$
|
596
|
|
Crude oil
|
|
Long-term liabilities
|
|
$
|
242
|
|
|
$
|
-
|
|
|
$
|
242
|
|
7. Loans payable
As of the dates indicated, our third-party debt consisted of the following:
|
June 30,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
Fixed and floating rate loans
|
(in thousands)
|
|
Term Loan
|
$
|
16,500
|
|
|
$
|
25,000
|
|
2017 Notes (1)
|
|
9,450
|
|
|
|
13,500
|
|
2017 Notes - Related Party (1)
|
|
525
|
|
|
|
750
|
|
ANBE Note
|
|
-
|
|
|
|
2,694
|
|
Loans payable
|
|
26,475
|
|
|
|
41,944
|
|
Less: current portion
|
|
26,475
|
|
|
|
38,194
|
|
Long-term portion
|
$
|
-
|
|
|
$
|
3,750
|
|
(1)
|
The 2017 Notes matured on July 1, 2017, and on July 3, 2017, we paid off and retired all remaining outstanding 2017 Notes.
|
Term Loan
On August 23, 2016, the Turkish branch of TransAtlantic Exploration Mediterranean International Pty Ltd (“TEMI”) entered into a Credit Agreement with DenizBank, A.S. (“DenizBank”).
On August 31, 2016, DenizBank entered into a $30.0 million term loan with TEMI under the Credit Agreement (the “Term Loan”). In addition, we and DenizBank entered into additional agreements with respect to up to $20.0 million of non-cash facilities, including guarantee letters and treasury instruments for future hedging transactions.
On September 7, 2016, TEMI used approximately $22.9 million of the proceeds from the Term Loan to repay our prior senior credit facility in full.
The Term Loan bears interest at a fixed rate of 5.25% (plus 0.2625% for Banking and Insurance Transactions Tax per the Turkish government) per annum. Amounts repaid under the Term Loan may not be re-borrowed, and early repayments under the Term Loan are subject to early repayment fees.
On April 27, 2017, TEMI and DenizBank approved a revised amortization schedule for the Term Loan. Pursuant to the revised amortization schedule, the maturity date of the Term Loan was extended from February 2018 to June 2018, and the monthly principal payments were reduced from $1.88 million to $1.38 million. The other terms of the Term Loan remain unchanged.
At June 30, 2017, we had $16.5 million outstanding under the Term Loan and no availability, and were in compliance with the covenants in the Term Loan
.
13
2017 Notes
As of June 30, 2017, we had $10.0 million aggregate principal amount of outstanding 2017 Notes. The 2017 Notes were issued pursuant to an indenture, dated as of February 20, 2015 (the “Indenture”), between us and U.S. Bank National Association, as trustee (the “Trustee”). The 2017 Notes bore interest at an annual rate of 13.0%, payable semi-annually, in arrears, on January 1 and July 1 of each year. The 2017 Notes matured on July 1, 2017, and on July 3, 2017, we paid off and retired all remaining outstanding 2017 Notes.
ANBE Note
On December 30, 2015, TransAtlantic Petroleum (USA) Corp (“TransAtlantic USA”) entered into a $5.0 million draw down convertible promissory note (the “Note”) with ANBE Holdings, L.P. (“ANBE”), an entity owned by the adult children of the Company’s chairman and chief executive officer, N. Malone Mitchell 3rd, and controlled by an entity managed by Mr. Mitchell and his wife. The ANBE Note bore interest at a rate of 13.0% per annum.
On December 30, 2015, the Company borrowed $3.6 million under the ANBE Note (the “Initial Advance”). The Initial Advance was used for general corporate purposes. On February 27, 2017, we repaid the ANBE Note in full with proceeds from the sale of TBNG and terminated it.
Unsecured lines of credit
Our wholly-owned subsidiaries operating in Turkey are party to unsecured, non-interest bearing lines of credit with a Turkish bank. At June 30, 2017, we had no outstanding borrowings under these lines of credit.
8. Contingencies relating to production leases and exploration permits
Selmo
We are involved in litigation with persons who claim ownership of a portion of the surface at the Selmo oil field in Turkey. These cases are being vigorously defended by TEMI and Turkish governmental authorities. We do not have enough information to estimate the potential additional operating costs we would incur in the event the purported surface owners’ claims are ultimately successful. Any adjustment arising out of the claims will be recorded when it becomes probable and measurable.
Morocco
During 2012, we were notified that the Moroccan government may seek to recover approximately $5.5 million in contractual obligations under our Tselfat exploration permit work program. In February 2013, the Moroccan government drew down our $1.0 million bank guarantee that was put in place to ensure our performance of the Tselfat exploration permit work program. Although we believe that the bank guarantee satisfies our contractual obligations, during 2012, we recorded $5.0 million in accrued liabilities relating to our Tselfat exploration permit for this contingency. In September 2016, management determined that, because it had received no communication from the Moroccan government since early 2013, the probability of payment of this contingency is remote. Therefore, the Company reversed the $6.0 million in contingent liabilities previously classified as liabilities held for sale
.
Bulgaria
During 2012, we were notified that the Bulgarian government may seek to recover approximately $2.0 million in contractual obligations under our Aglen exploration permit work program. Due to the Bulgarian government’s January 2012 ban on fracture stimulation and related activities, a force majeure event under the terms of the exploration permit was recognized by the government. Although we invoked force majeure, we recorded $2.0 million in general and administrative expense relating to our Aglen exploration permit during 2012 for this contractual obligation.
In October 2015, the Bulgarian Ministry of Energy and Economy filed a suit against our subsidiary, Direct Petroleum Bulgaria EOOD (“Direct Bulgaria”), claiming a $200,000 penalty for Direct Bulgaria’s alleged failure to fulfill the work program associated with the Aglen exploration permit. Direct Bulgaria received a force majeure recognition in 2012 from the Bulgarian Ministry of Energy and Economy, and the force majeure event has not been rectified. We believe that Direct Bulgaria is not under any obligation to fulfill the work program until the force majeure event is rectified, and continue to vigorously defend this claim.
14
9. Shareholders’ equity
Restricted stock units
We recorded share-based compensation expense of $0.3 million and $0.2 million for awards of restricted stock units (“RSUs”) for the three months ended June 30, 2017 and 2016, respectively. We recorded share-based compensation expense $0.4 million for awards of RSUs for each of the six months ended June 30, 2017 and 2016.
As of June 30, 2017, we had approximately $0.6 million of unrecognized compensation expense related to unvested RSUs, which is expected to be recognized over a weighted average period of 1 year.
Earnings per share
We account for earnings per share in accordance with ASC Subtopic 260-10,
Earnings Per Share
(“ASC 260-10”). ASC 260-10 requires companies to present two calculations of earnings per share: basic and diluted. Basic earnings per common share for the three and six months ended June 30, 2017 and 2016 equals net income (loss) divided by the weighted average shares outstanding during the periods. Weighted average shares outstanding are equal to the weighted average of all shares outstanding for the period, excluding unvested RSUs. Diluted earnings per common share for the three and six months ended June 30, 2017 and 2016 are computed in the same manner as basic earnings per common share after assuming the issuance of common shares for all potentially dilutive common share equivalents, which includes RSUs, preferred shares and warrants, whether exercisable or not. For the three months ended June 30, 2017, there were 413,997 dilutive securities included in the calculation of diluted earnings per share.
The following table presents the basic and diluted earnings per common share computations:
|
Three Months Ended
|
|
|
Six Months Ended
|
|
|
June 30
|
|
|
June 30
|
|
(in thousands, except per share amounts)
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Net income (loss) from continuing operations
|
$
|
566
|
|
|
$
|
(6,544
|
)
|
|
$
|
(15,483
|
)
|
|
$
|
(12,110
|
)
|
Net loss from discontinued operations
|
$
|
-
|
|
|
$
|
(118
|
)
|
|
$
|
-
|
|
|
$
|
(103
|
)
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
47,412
|
|
|
|
41,001
|
|
|
|
47,355
|
|
|
|
40,870
|
|
Basic net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.30
|
)
|
Discontinued operations
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Diluted net income (loss) per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding
|
|
47,412
|
|
|
|
41,001
|
|
|
|
47,355
|
|
|
|
40,870
|
|
Dilutive effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units
|
|
414
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Weighted average common shares outstanding
|
|
47,826
|
|
|
|
41,001
|
|
|
|
47,355
|
|
|
|
40,870
|
|
Diluted net (income) loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
|
$
|
(0.33
|
)
|
|
$
|
(0.30
|
)
|
Discontinued operations
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
15
10. Segment information
In accordance with ASC 280,
Segment Reporting
(“ASC 280”), we have two reportable geographic segments: Turkey and Bulgaria. Summarized financial information from continuing operations concerning our geographic segments is shown in the following table:
|
Corporate
|
|
|
Turkey
|
|
|
Bulgaria
|
|
|
Total
|
|
|
(in thousands)
|
|
For the three months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
12,341
|
|
|
$
|
-
|
|
|
$
|
12,341
|
|
(Loss) income from continuing operations before income taxes
|
|
(4,315
|
)
|
|
|
6,163
|
|
|
|
(79
|
)
|
|
|
1,769
|
|
Capital expenditures
|
$
|
-
|
|
|
$
|
4,893
|
|
|
$
|
-
|
|
|
$
|
4,893
|
|
For the three months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
17,698
|
|
|
$
|
-
|
|
|
$
|
17,698
|
|
Loss from continuing operations before income taxes
|
|
(3,990
|
)
|
|
|
(567
|
)
|
|
|
(138
|
)
|
|
|
(4,695
|
)
|
Capital expenditures
|
$
|
-
|
|
|
$
|
911
|
|
|
$
|
-
|
|
|
$
|
911
|
|
For the six months ended June 30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
$
|
-
|
|
|
$
|
28,777
|
|
|
$
|
-
|
|
|
$
|
28,777
|
|
(Loss) income from continuing operations before income taxes
|
|
(23,236
|
)
|
|
|
11,240
|
|
|
|
(149
|
)
|
|
|
(12,145
|
)
|
Capital expenditures
|
$
|
-
|
|
|
$
|
11,331
|
|
|
$
|
-
|
|
|
$
|
11,331
|
|
For the six months ended June 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues
|
|
|
|
|
$
|
33,264
|
|
|
|
|
|
|
$
|
33,264
|
|
(Loss) income from continuing operations before income taxes
|
|
(8,990
|
)
|
|
|
679
|
|
|
|
(203
|
)
|
|
|
(8,514
|
)
|
Capital expenditures
|
$
|
-
|
|
|
$
|
3,191
|
|
|
$
|
-
|
|
|
$
|
3,191
|
|
Segment assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2017
|
$
|
21,837
|
|
|
$
|
146,372
|
|
|
$
|
595
|
|
|
$
|
168,804
|
|
December 31, 2016 (1)
|
$
|
17,007
|
|
|
$
|
153,560
|
|
|
$
|
609
|
|
|
$
|
171,176
|
|
(1)
|
Excludes assets of TBNG of $25.2 million at December 31, 2016.
|
11. Financial instruments
Cash and cash equivalents, restricted cash, accounts receivable, accounts payable, accrued liabilities and our loans payable were each estimated to have a fair value approximating the carrying amount at June 30, 2017 and December 31, 2016, due to the short maturity of those instruments.
Interest rate risk
We are exposed to interest rate risk as a result of our variable rate short-term cash holdings.
Foreign currency risk
We have underlying foreign currency exchange rate exposure. Our currency exposures relate to transactions denominated in the Bulgarian Lev, European Union Euro, and Turkish Lira (“TRY”). We are also subject to foreign currency exposures resulting from translating the functional currency of our foreign subsidiary financial statements into the U.S. Dollar reporting currency. We have not used foreign currency forward contracts to manage exchange rate fluctuations. At June 30, 2017, we had 9.9 million TRY (approximately $2.8 million) in cash and cash equivalents, which exposes us to exchange rate risk based on fluctuations in the value of the TRY.
Commodity price risk
We are exposed to fluctuations in commodity prices for oil and natural gas. Commodity prices are affected by many factors, including, but not limited to, supply and demand. At June 30, 2017 and December 31, 2016, we were a party to commodity derivative contracts (See Note 6, “Commodity derivative instruments”).
16
Concentration of credit risk
The majority of our receivables are within the oil and natural gas industry, primarily from our industry partners and from government agencies. Included in receivables are amounts due from Turkiye Petrolleri Anonim Ortakligi, the national oil company of Turkey, and Turkiye Petrol Rafinerileri A.Ş., a privately owned oil refinery in Turkey, which purchases all of our oil production. The receivables are not collateralized. To date, we have experienced minimal bad debts from customers in Turkey. The majority of our cash and cash equivalents are held by three financial institutions in the United States and Turkey.
Fair value measurements
The following table summarizes the valuation of our financial assets and liabilities as of June 30, 2017:
|
Fair Value Measurement Classification
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
(in thousands)
|
|
Measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
–
|
|
|
$
|
794
|
|
|
$
|
–
|
|
|
$
|
794
|
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
-
|
|
|
|
-
|
|
|
|
(16,500
|
)
|
|
|
(16,500
|
)
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(9,975
|
)
|
|
|
(9,975
|
)
|
Total
|
$
|
–
|
|
|
$
|
794
|
|
|
$
|
(26,475
|
)
|
|
$
|
(25,681
|
)
|
The following table summarizes the valuation of our financial assets and liabilities as of December 31, 2016:
|
Fair Value Measurement Classification
|
|
|
Quoted Prices in
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Identical Assets or
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
Liabilities
|
|
|
Observable Inputs
|
|
|
Unobservable Inputs
|
|
|
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
Total
|
|
|
(in thousands)
|
|
Measured on a recurring basis
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity derivative contracts
|
$
|
–
|
|
|
$
|
(838
|
)
|
|
$
|
–
|
|
|
$
|
(838
|
)
|
Disclosed but not carried at fair value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Term Loan
|
|
-
|
|
|
|
-
|
|
|
|
(22,500
|
)
|
|
|
(22,500
|
)
|
2017 Notes
|
|
-
|
|
|
|
-
|
|
|
|
(13,554
|
)
|
|
|
(13,554
|
)
|
Total
|
$
|
–
|
|
|
$
|
(838
|
)
|
|
$
|
(36,054
|
)
|
|
$
|
(36,892
|
)
|
We remeasure our derivative contracts on a recurring basis, with changes flowing through earnings. At June 30, 2017 and December 31, 2016, the fair values of our Term Loan and the 2017 Notes were estimated using a discounted cash flow analysis based on unobservable Level 3 inputs, including our own credit risk associated with the loans payable.
17
12. Related party transactions
The following table summarizes related party accounts receivable and accounts payable as of the dates indicated:
|
June 30,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
|
|
(in thousands)
|
|
Related party accounts receivable:
|
|
|
|
|
|
|
|
Riata Management Service Agreement
|
$
|
456
|
|
|
$
|
528
|
|
PSIL MSA
|
|
334
|
|
|
|
234
|
|
Total related party accounts receivable
|
|
790
|
|
|
|
762
|
|
Related party accounts payable:
|
|
|
|
|
|
|
|
Riata Management Service Agreement
|
$
|
433
|
|
|
$
|
346
|
|
PSIL MSA
|
|
1,671
|
|
|
|
1,315
|
|
Interest payable on 2017 Notes
|
|
34
|
|
|
|
183
|
|
Total related party accounts payable
|
$
|
2,138
|
|
|
$
|
1,844
|
|
Services transactions
On March 20, 2017, the Company entered into a second amendment to the Service Agreement among the Company and Longfellow Energy, LP, a Texas limited partnership (“Longfellow”), Viking Drilling, LLC, a Nevada limited liability company, RIATA Management LLC, an Oklahoma limited liability company, Longfellow Nemaha, LLC, a Texas limited liability company, Red Rock Minerals, LP, a Delaware limited partnership, Red Rock Advisors, LLC, a Texas limited liability company, Production Solutions International Limited, a Bermuda exempted company, and Nexlube Operating, LLC, a Delaware limited liability company, and their subsidiaries (collectively, the "Riata Entities"), adding and removing certain of the Riata Entities and expanding the scope of services. Because this agreement is a related party transaction, the independent members of the Board of Directors reviewed and approved this amendment. As of June 30, 2017, the Company had $0.5 million of outstanding receivables and $0.4 million of outstanding payables pursuant to this Service Agreement.
On March 3, 2016, Mr. Mitchell sold his interests in Viking Services B.V. (“Viking Services”), the beneficial owner of Viking International Limited (“Viking International”), Viking Petrol Sahasi Hizmetleri A.S. (“VOS”) and Viking Geophysical Services Ltd. (“Viking Geophysical”), to a third party. As part of the transaction, Mr. Mitchell acquired certain equipment used in the performance of stimulation, wireline, workover and similar services (the “Services”), which equipment is owned and operated by Production Solutions International Petrol Arama Hizmetleri Anonim Sirketi (“PSIL”). PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. Consequently, on March 3, 2016, TEMI entered into a master services agreement (the “PSIL MSA”) with PSIL on substantially similar terms to our current master services agreements with Viking International, VOS and Viking Geophysical. Pursuant to the PSIL MSA, PSIL performs the Services on behalf of TEMI and its affiliates. The master services agreements with each of Viking International, VOS and Viking Geophysical remain in effect in accordance with the terms of the agreements. As of June 30, 2017, the Company had $0.3 million of outstanding receivables and $1.7 million of outstanding payables pursuant to the PSIL MSA.
Debt transactions
On February 27, 2017, we repaid the ANBE Note in full with proceeds from the sale of TBNG and terminated it.
Dalea Amended Note and Pledge Agreement
On April 19, 2016, we entered into a note amendment agreement (the “Note Amendment Agreement”) with Mr. Mitchell and Dalea Partners, LP (“Dalea”), pursuant to which Dalea agreed to deliver an amended and restated promissory note (the “Amended Note”) in favor of us, in the principal sum of $7,964,053, which Amended Note would amend and restate that certain Promissory Note, dated June 13, 2012, made by Dalea in favor of us in the principal amount of $11,500,000 (the “Original Note”). The Note Amendment Agreement reduced the principal amount of the Original Note to $7,964,053 in exchange for the cancellation of an account payable of approximately $3.5 million (the “Account Payable”) owed by TransAtlantic Albania Ltd. (“TransAtlantic Albania”), a former subsidiary of the Company, to Viking International Limited. We have indemnified a third party for any liability relating to the payment of the Account Payable.
Pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into the Amended Note, which amended and restated the Original Note that was issued in connection with our sale of its subsidiaries, Viking International and Viking Geophysical Services, to
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a joint venture owned by Dalea and Abraaj Investment Management Limited in June 2012. In the Amended Note, we and Dalea acknowledged that (i) while the sale of Dalea’s interest in Viking Services enabled us to take the position that the Original Note
was accelerated in accordance with its terms, the principal purpose of including the acceleration events in the Original Note was to ensure that certain oilfield services provided by Viking Services to us would continue to be available to us, and (ii) suc
h services will now be provided pursuant to the PSIL MSA. PSIL is beneficially owned by Dalea Investment Group, LLC, which is controlled by Mr. Mitchell. As a result, the Amended Note revised the events triggering acceleration of the repayment of the Orig
inal Note to the following: (i) a reduction of ownership by Dalea (and other controlled affiliates of Mr. Mitchell) of equity interest in PSIL to less than 50%; (ii) the sale or transfer by Dalea or PSIL of all or substantially all of its assets to any per
son (a “Transferee”) that does not own a controlling interest in Dalea or PSIL and is not controlled by Mr. Mitchell (an “Unrelated Person”), or the subsequent transfer by any Transferee that is not an Unrelated Person of all or substantially all of its as
sets to an Unrelated Person; (iii) the acquisition by an Unrelated Person of more than 50% of the voting interests of Dalea or PSIL; (iv) termination of the PSIL MSA other than as a result of an uncured default thereunder by TEMI; (v) default by PSIL under
the PSIL MSA, which default is not remedied within a period of 30 days after notice thereof to PSIL; and (vi) insolvency or bankruptcy of PSIL. The maturity date of the Amended Note was extended to June 13, 2019. The interest rate on the Amended Note rema
ins at 3.0% per annum and continues to be guaranteed by Mr. Mitchell. The Amended Note contains customary events of default.
In addition, pursuant to the Note Amendment Agreement, on April 19, 2016, we entered into a pledge agreement (the “Pledge Agreement”) with Dalea, whereby Dalea pledged the $2.1 million principal amount of the 2017 Notes issued by us and owned by Dalea (the “Dalea Convertible Notes”), including any future securities for which the Dalea Convertible Notes are converted or exchanged, as security for the performance of Dalea’s obligations under the Amended Note. The Pledge Agreement provides that interest payable to Dalea under the Dalea Convertible Notes (or any future securities for which the Dalea Convertible Notes are converted or exchanged) will be credited first against the outstanding principal balance of the Amended Note and, upon full repayment of the outstanding principal balance of the Amended Note, any accrued and unpaid interest on the Amended Note. The Pledge Agreement contains customary events of default.
On November 4, 2016, Dalea exchanged $2.0 million of 2017 Notes for 40,000 Series A Preferred Shares, which were pledged as security for the performance of Dalea’s obligations under the Amended Note pursuant to the terms of the Pledge Agreement.
During the three and six months ended June 30, 2017, we reduced the principal amount of the Amended Note by $0.1 million and $0.2
million, respectively,
for cash dividends on the Series A Preferred Shares.
Pledge fee agreements
In connection with the pledge of the Gundem real estate and Muratli real estate to DenizBank as collateral for the Term Loan, on August 31, 2016, the Company entered into a pledge fee agreement with Gundem (the “Gundem Fee Agreement”) pursuant to which the Company pays Gundem a fee equal to 5% per annum of the collateral value of the Gundem real estate and Muratli real estate. Pursuant to the Gundem Fee Agreement, the Gundem real estate has a deemed collateral value of $10.0 million and the Muratli real estate has a deemed collateral value of $5.0 million.
In connection with the pledge of the Diyarbakir real estate to DenizBank as collateral for the Term Loan, on August 31, 2016, the Company entered into a pledge fee agreement with Messrs. Mitchell and Uras (the “Diyarbakir Fee Agreement”) pursuant to which the Company pays Mr. Mitchell and Selami Erdem Uras a fee of 5% per annum of the collateral value of the Diyarbakir real estate. Mr. Uras is our vice president, Turkey. Pursuant to the Diyarbakir Fee Agreement, the Diyarbakir real estate has a deemed collateral value of $5.0 million.
Amounts payable to Mr. Mitchell under the Gundem Fee Agreement and the Diyarbakir Fee Agreement are used to reduce the outstanding principal amount of the Amended Note. During the three and six months ended June 30, 2017, we reduced the principal amount of the Amended Note by $0.2 million and $0.3 million, respectively, for amounts payable under the pledge fee agreements.
Office lease
On June 26, 2017, and effective as of January 1, 2017, the Company’s wholly owned subsidiary, TransAtlantic USA entered into an Amended and Restated Office Lease (the “Office Lease”) with Longfellow to lease approximately 10,000 square feet of corporate office space in Addison, Texas. The initial lease term under the Office Lease commenced on January 1, 2017 (the “Commencement Date”), and expires five years after the Commencement Date, unless earlier terminated in accordance with the Office Lease. TransAtlantic USA has the option to extend the lease term for two additional periods of five years each. If TransAtlantic USA exercises its option to extend the lease term, the monthly rent payable during such extended term shall be at a mutually agreed upon amount for monthly rent during the renewal term. During the first five months of the initial lease term, TransAtlantic USA is required to pay monthly rent of $14,745.16 to Longfellow, plus utilities, real property taxes, and liability insurance (to the extent that TransAtlantic does not obtain its own liability insurance). Monthly rent increases by $2,754.84 the sixth month of the initial lease term, by $833.33 the second year of the initial lease term, and by approximately $417 each year thereafter during the initial lease term.
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13. Assets and liabilities held for sale and discontinued operations
TBNG assets and liabilities held for sale
On October 13, 2016, we entered into a share purchase agreement (the “Purchase Agreement”) with Valeura Energy Netherlands B.V. (“Valeura”) for the sale of all of the equity interests in TBNG, our wholly-owned subsidiary. TBNG owns a portion of the Company’s interests in the Thrace Basin area in Turkey.
We classified the assets and liabilities of TBNG within the captions “Assets held for sale” and “Liabilities held for sale” on our consolidated balance sheets as of December 31, 2016. Although the sale of TBNG met the threshold to classify its assets and liabilities as held for sale, it did not meet the requirements to classify its operations as discontinued as the sale was not considered a strategic shift in the Company’s operations. As such, TBNG’s results of operations are classified as continuing operations for all periods presented.
On February 24, 2017, we closed on the sale of TBNG for gross proceeds of $20.7 million, and approximate net cash proceeds of $16.1 million, effective as of March 31, 2016. The purchase price was subject to post-closing adjustments, and we agreed to escrow $3.1 million of the purchase price for 30 days to satisfy any agreed upon purchase price adjustments. We agreed to a $0.2 million reduction to the purchase price and, on April 10, 2017, we collected the $2.9 million of escrowed funds.
For the six months ended June 30, 2017, we recorded a net loss of $15.2 million on the sale of TBNG. The loss related to the reclassification of the TBNG accumulated foreign currency translation adjustment that was realized into earnings from accumulated other comprehensive loss within shareholders’ equity. The calculation of the loss on sale is presented below:
|
Loss on Sale
|
|
|
(in thousands)
|
|
Total cash proceeds for TBNG
|
$
|
20,707
|
|
Less: TBNG net assets
|
|
12,869
|
|
Gain on sale before accumulated foreign currency translation adjustment
|
|
7,838
|
|
Less: TBNG accumulated foreign currency translation adjustment
|
|
(23,064
|
)
|
Net loss on sale of TBNG
|
$
|
(15,226
|
)
|
Our assets and liabilities held for sale at December 31, 2016 were as follows:
|
Held for Sale
|
|
|
(in thousands)
|
|
For the year ended December 31, 2016
|
|
|
|
Assets
|
|
|
|
Cash
|
$
|
1,551
|
|
Other current assets
|
|
7,511
|
|
Property and equipment, net
|
|
16,155
|
|
Total current assets held for sale
|
$
|
25,217
|
|
|
|
|
|
Liabilities
|
|
|
|
Accounts payable and other accrued liabilities
|
$
|
11,240
|
|
Deferred tax liability
|
|
4,698
|
|
Total current liabilities held for sale
|
$
|
15,938
|
|
We had no assets or liabilities held for sale at June 30, 2017.
Discontinued operations in Albania
In February 2016, we sold all of the outstanding equity in our wholly-owned subsidiary, Stream Oil & Gas Ltd. (“Stream”), to GBC Oil Company (“GBC Oil”). We have presented the Albanian segment operating results as discontinued operations for the three and six months ended June 30, 2016.
On September 1, 2016, we completed a joint venture transaction with respect to the assets in the Delvina gas field in Albania (the “Delvina Assets”). We transferred (the “Transfer”) 75% of the outstanding shares of Delvina Gas Company Ltd. (“DelvinaCo”), which owns the Delvina Assets, to Ionian Gas Company Ltd. (“Ionian”) in exchange for Ionian’s agreement to pay $12.0 million to
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DelvinaCo, which will be used primarily to repay debt and for general corporate purposes with respect to the Delvina Assets.
Aft
er the Transfer, we retained a 25% equity interest in DelvinaCo and agreed to pay 25% of the operating costs of DelvinaCo, subject to a three-year deferral of capital expenditures. As of June 30, 2017, we no longer hold our 25% interest in DelvinaCo as ass
ets held for sale, and have consolidated our interest using proportionate consolidation.
On August 9, 2017, due to continued failures by our joint venture partners
to timely meet their obligations, uncompleted local governmental ratifications, and our prioritization of funds, we transferred our 25% equity interest in DelvinaCo to Delvina Investment Partners Ltd. in exchange for a release of all claims with respect to DelvinaCo and a cash payment of $300,000 for amounts owed to us under agreements entered into in connection with the DelvinaCo joint venture transaction. Additionally, we terminated all of our responsibilities as operator and our obligations to pay any operating costs or any other expenditures with respect to DelvinaCo. This divestiture completes our departure from all Albanian operations and assets.
Our operating results from discontinued operations for the three and six months ended June 30, 2016 are summarized as follows:
|
Discontinued Operations
|
|
|
(in thousands)
|
|
For the three months ended June, 2016
|
|
|
|
Total revenues
|
$
|
-
|
|
Production and transportation expense
|
|
-
|
|
Total other costs and expenses
|
|
118
|
|
Loss before income taxes
|
$
|
(118
|
)
|
Gain on disposal of discontinued operations
|
|
-
|
|
Income tax benefit
|
|
-
|
|
Loss from discontinued operations
|
$
|
(118
|
)
|
|
|
|
|
For the six months ended June, 2016
|
|
|
|
Total revenues
|
$
|
626
|
|
Production and transportation expense
|
|
1,155
|
|
Total other costs and expenses
|
|
527
|
|
Loss before income taxes
|
$
|
(1,056
|
)
|
Gain on disposal of discontinued operations
|
|
749
|
|
Income tax benefit
|
|
204
|
|
Loss from discontinued operations
|
$
|
(103
|
)
|
For the three and six months ended June 30, 2017, we did not have any discontinued operations.
14. Subsequent Events
On July 3, 2017, we paid off and retired all remaining 2017 Notes.
On August 9, 2017, due to continued failures by our joint venture partners
to timely meet their obligations, uncompleted local governmental ratifications, and our prioritization of funds, we transferred our 25% equity interest in DelvinaCo to Delvina Investment Partners Ltd. in exchange for a release of all claims with respect to DelvinaCo and a cash payment of $300,000 for amounts owed to us under agreements entered into in connection with the DelvinaCo joint venture transaction. Additionally, we terminated all of our responsibilities as operator and our obligations to pay any operating costs or any other expenditures with respect to DelvinaCo. This divestiture completes our departure from all Albanian operations and assets.
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